Notice Pay: Notice Periods and Calculation in the Termination of Employment Contracts

While regulating the employment relationship between the employee and the employer, labor law primarily aims to protect the parties' obligations to each other, their duty of loyalty, and their mutual interests. The sudden and unannounced termination of indefinite-term employment contracts, which create a continuous debt relationship, by either party can lead to serious economic and social upheavals for both the employee and the employer. In order to prevent such negativities, the legislator has established it as a mandatory rule that the intention to terminate must be notified to the other party a certain period in advance. In the event of failure to comply with these notice periods, the institution of notice pay (payment in lieu of notice), one of the most fundamental sanctions and safeguards of labor law, comes into play.

Below, the concept, origination, calculation, and procedural rules of notice pay are comprehensively examined in light of the decisions of the Court of Cassation (Yargıtay) and the General Assembly of Civil Chambers (HGK).

Definition and Legal Nature of Notice Pay

Notice pay is a legal sanction in which, in cases of termination of indefinite-term employment contracts without complying with the notification requirement, the party who fails to meet the statutory requirement must pay the other party a sum of money equivalent to the wage covering the notice periods. In labor laws, this compensation is included to provide the parties with a termination safeguard through prior notification before the dissolution of the contract.

When evaluated in terms of its legal nature, notice pay is not a general type of compensation under the Law of Obligations in the technical sense. The obligation of the party making the irregular termination to pay this compensation is not contingent upon the condition of fault or the existence of the other party's damage. In other words, whether the terminating party is at fault or not is irrelevant, and the party subjected to the termination is not required to prove that they suffered damage arising from the irregularity of the termination.

According to the law, simply failing to comply with the notification requirement is a necessary and sufficient condition to claim notice pay. This situation has also been emphasized in the jurisprudence of the Court of Cassation, where it is accepted that notice pay is a statutory, lump-sum compensation and a penal sanction introduced for the benefit of the opposing party, not the party terminating the employment contract. In this respect, an employee who is dismissed by the employer without being granted a notice period will continue to have the right to claim notice pay from the employer, even if they find a new and higher-paying job the very next day after the termination date.

Conditions for Entitlement to Notice Pay

In order to claim notice pay, there must first be an indefinite-term employment contract subject to Labor Law No. 4857 between the parties. In fixed-term employment contracts, since the parties know in advance when the contract will end, notice pay does not generally come into question. However, notice pay will arise in the unjust termination of contracts that are deemed indefinite-term from the beginning because they do not meet the statutory requirements.

The termination of the contract not being based on a just cause is one of the most fundamental conditions for a notice pay claim. In cases of immediate termination for just cause regulated in Articles 24 and 25 of the Labor Law, the terminating party is not obliged to grant a notice period. However, the most critical issue to pay attention to here is who terminates the contract. As explicitly stated in the decision of the 9th Civil Chamber of the Court of Cassation dated 19.02.2003 (Merits 2002/14234, Decision 2003/1874); "Even if based on a just cause, the party who terminates the employment contract of their own accord cannot claim notice pay." According to this established jurisprudence, even if the employee terminates the contract for just cause due to an unjust attitude of the employer, they will be entitled to severance pay but will not be able to claim notice pay. This is because notice pay aims to remedy the grievance of the person whose contract is terminated irregularly and unjustly by the other party.

Statutory Notice Periods and Their Increase via Contract

According to Article 17 of the Labor Law, employment contracts are deemed terminated after:

Two weeks for an employee whose employment has lasted less than six months,

Four weeks for an employee whose employment has lasted from six months to one and a half years,

Six weeks for an employee whose employment has lasted from one and a half years to three years,

Eight weeks for an employee whose employment has lasted for more than three years.

These periods are statutory minimums and can be increased in favor of the parties through employment contracts or collective labor agreements. However, the limit of this increase has occupied judicial authorities for a long time. Increasing notice periods exorbitantly can constitute a violation of the principle of good faith and the prohibition of abuse of rights stipulated in Article 2 of the Turkish Civil Code. The 9th Civil Chamber of the Court of Cassation settled this issue in its decision dated 21.03.2006 (Merits 2006/109, Decision 2006/7052), ruling that although the law states that notice periods can be increased, this increase cannot be unlimited, the upper limit should be determined within the judge's discretion, and this limit can at most be equal to the sum of notice and bad faith compensations or the ceiling of severance pay. Therefore, exorbitant provisions placed in contracts, such as "a 10-year notice period shall apply," are limited by the courts.

Principle of Indivisibility of Notice Periods

The fundamental rule in the application of notice periods in labor law is the principle of the "indivisibility of notice periods". This principle dictates that the employer cannot divide the statutory or contractual notice period, for example, by allowing the employee to use a portion of the period and paying compensation for the remaining part.

This principle is applied very strictly in the practices of the Court of Cassation. According to the established jurisprudence of the Court of Cassation, in terminations made by the employer granting an incomplete notice period, the wage for the entire notice period, not just the missing period, must be paid as notice pay. For example, if an employer grants a 6-week notice period to an employee who is legally subject to an 8-week notice period, the employee will be entitled to notice pay for the entire 8-week period, not just 2 weeks. This is because incomplete notification results in the notification requirement being deemed completely unfulfilled.

Job Search Leave and Its Judicial Consequences

Pursuant to Article 27 of the Labor Law, during the notice periods, the employer is obliged to grant the employee the necessary job search leave to find a new job within working hours and without any deduction from their wage. The duration of the job search leave cannot be less than two hours a day. If the employer does not grant the job search leave or grants it incompletely, they must pay the employee the wage corresponding to that period. Furthermore, if the employer makes the employee work during the job search leave time, in addition to the wage the employee will receive without working, the employer must pay the wage for the time worked with a one hundred percent increase (double time).

One of the most frequently encountered disputes in practice regarding this issue is whether job search leave wages can be claimed for unworked weekly rest days, national holidays, and general holidays. According to the decision of the General Assembly of Civil Chambers of the Court of Cassation dated 27.01.2010 (Merits 2009/9-593, Decision 2010/20) and the practices of the 9th Civil Chamber; job search leave is valid for the days the employee actually works within the notice period, and there is no obligation to grant job search leave for weekly rest days, national holidays, and general holidays when the employee does not work. Therefore, calculating a 100% increased job search leave wage for unworked days is unlawful and constitutes a ground for reversal.

Notice Pay in Special Cases of Termination

Terminations Based on Retirement: Notice pay cannot be claimed if the employment contract is terminated by the employee for the purpose of being allocated an old-age, retirement, or disability pension. According to the established jurisprudence of the 9th Civil Chamber of the Court of Cassation, the retirement process is a unilateral declaration of intent, and the employee terminating the contract for this reason does not necessitate the granting of a notice period. Likewise, if the employer unilaterally terminates the contract merely because the employee has become entitled to retirement and does not comply with the notice periods, the employer will be obliged to pay notice pay.

Seasonal Work: In seasonal employment contracts, the suspension of the employment contract upon the end of the season or campaign period is not considered a termination. However, as stated in the decisions of the Court of Cassation, if the employer has notified that they will not hire the employee in the new season or has not initiated employment at the beginning of the new season without a just cause, the employment contract is deemed broken, and the employee becomes entitled to notice pay.

Situation in Invalidated Termination (Reinstatement): If it is decided that the termination is invalid as a result of the reinstatement lawsuit filed by the employee and the employee is reinstated to work, the termination shall be deemed to have never taken place, and therefore the legal basis of the notice pay previously paid to the employee disappears. According to the decision of the 9th Civil Chamber of the Court of Cassation dated 14.10.2008 (Merits 2008/29383, Decision 2008/27243); if the employee is reinstated upon a finalized reinstatement decision, the notice pay previously paid must be deducted from the employee's other receivables, such as the idle time wage they are entitled to, since the employment relationship continues.

Calculation of Notice Pay (The Base)

In determining the amount of notice pay, the "dressed gross wage" (total gross compensation including benefits) is taken as the basis, not the employee's net wage or bare wage. According to the last paragraph of Article 17 of the Labor Law, benefits arising from the contract and the law, which are provided to the employee in money or which can be measured in money, are also taken into consideration in the calculation of notice pay.

It is a prerequisite that the payments to be included in the dressed wage are continuous and possess the nature of social assistance or an additional benefit paid without corresponding to actual work. For instance, regularly paid meal and transportation allowances, continuous premiums, and bonuses are reflected in the notice pay calculation. Conversely, as also stated in the Court of Cassation's decision dated 25.04.1996 (1996/8506-9553), incidental (temporary) payments and overtime wages are strictly excluded from the notice pay base.

Statutory deductions must be made from the calculated gross notice pay amount. However, these deductions consist solely of income tax pursuant to the Income Tax Law No. 193 and stamp tax pursuant to the Stamp Tax Law No. 488. Since notice pay is not in exchange for actual work, it cannot be included in the earnings subject to premium within the scope of Law No. 5510. According to the settled decisions of the 3rd Chamber of the Council of State, deducting Social Security Institution (SGK) premiums from notice pay is unlawful.

Termination by Advance Payment of Notice Period Wage

The employer has the right to immediately terminate the employment contract by paying the employee's wage pertaining to the notice periods in advance (Labor Law Art. 17). Although termination with advance payment provides convenience to the employer in terms of the functioning of the practice, it can create certain disadvantages for the employee.

In the event that the employment contract is terminated immediately by paying the notice pay in advance, all the consequences of the termination emerge as of the day the payment is made. The Court of Cassation's approach to this issue, which is debated in doctrine and judicial jurisprudence, is clear: If the wage corresponding to the notice period is paid in advance, since the employee can no longer be deemed to be working during this period, they cannot benefit from rights such as an increase in seniority time, annual paid leave rights, or potential raises or bonuses arising from a collective labor agreement that might arise during the advance payment period. The deep-rooted jurisprudence of the 9th Civil Chamber of the Court of Cassation dated 18.04.1984 (1882/1884-437) and its current decisions confirm that the date of termination is the moment the advance payment is made, not the end of the notice period.

Type of Lawsuit, Statute of Limitations, and Default Interest

In Terms of Uncertain Receivables Lawsuit: Whether notice pay can be subject to an uncertain receivables lawsuit within the scope of Article 107 of the Code of Civil Procedure (HMK) in labor jurisdiction has created a major legal debate. The General Assembly of Civil Chambers of the Court of Cassation drew a precedent-setting boundary on this issue in its decisions dated 17.06.2015 (Merits 2015/22-1156) and 17.01.2018 (Merits 2016/22-2181, Decision 2018/24). According to HGK decisions; if the employee's duration of work, peer wage at the date of termination, and social rights included in the dressed wage are undisputed between the parties or if the employee has the possibility to determine them, notice pay is a "certain" receivable, and an uncertain receivables lawsuit cannot be filed.

Furthermore, the general consensus (9th Civil Chamber, Merits 2021/5262, Decision 2021/12463, Date 21.09.2021; 9th Civil Chamber, Merits 2021/4831, Decision 2021/9009, Date 17.05.2021; 9th Civil Chamber, Merits 2021/11775, Decision 2021/15891, Date 29.11.2021) is that, as a rule, notice pay cannot be subject to an uncertain receivables lawsuit. Severance pay, notice pay, annual leave pay, and wage receivables are known by the employee and, as a rule, cannot be subject to an uncertain receivables lawsuit.

Default Interest: Unlike severance pay, the legislator has not stipulated a specific type of interest (e.g., the highest interest applied to deposits) to be applied in case notice pay is not paid on time. Due to the legal nature of notice pay not being a wage and the absence of a specific interest determined by law, statutory interest is applied from the date of default according to the provisions of the Code of Obligations. As stated in the precedent decision of the 9th Civil Chamber of the Court of Cassation dated 31.01.2006 (Merits 2005/29619, Decision 2006/1833), local courts ruling for the highest interest applied by banks for notice pay constitutes a ground for reversal; statutory interest must absolutely be applied. The interest start date (default) is the date the employer is put in default via a proper legal notice (ihtarname); if there is no legal notice, the lawsuit filing date or amendment (ıslah) date is taken as the basis.

Statute of Limitations: Since notice pay is a compensation, not a wage, by its legal structure, it was subject to the 10-year general statute of limitations in the repealed Code of Obligations in the past. However, in order to accelerate judicial processes and ensure legal certainty, with the amendment made in the legislation (Law No. 7036 and Labor Law Additional Article 3), the statute of limitations for notice pay receivables arising from the termination of the employment contract without complying with the notification requirement has been reduced to 5 (five) years. The beginning of the period is the date of termination, which is the moment the right arises.

Conclusion

Notice pay, which comes into play during the liquidation phase of employment contracts, is the most effective legal instrument that protects the parties from the severe grievances that surprise terminations would create. It provides a dual protection, such as preventing the employee from suddenly becoming unemployed and without income, and preventing the disruption of production or service for the employer due to the sudden vacancy of a critical position. In practice, situations such as exorbitantly increasing notice periods via contracts contrary to the principle of good faith, or violating the rule of indivisibility of notice periods frequently pass through the review of the Court of Cassation, and working life is guided by the established decisions of the HGK.

The scope of the dressed wage concept, the limits of statutory deductions, and the correct determination of the interest type must be meticulously followed by the legal representatives of the employee and employer in order to prevent long and costly judicial processes. Complying with procedural rules, especially notice periods, in the termination of employment contracts is not only a legal obligation but also a necessity for the equitable liquidation of the contractual duty of loyalty existing between the parties.